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Street vendors, also called arabbers, clean out a cart in Baltimore, Maryland. Once a common sight in American East Coast cities, only a handful of arabbers still walk the streets of Baltimore. | Jim Watson/AFP/Getty Images

Unemployment drops, but wage growth remains sluggish

Labor force participation was 63 percent, virtually unchanged since the start of 2018 and close to its lowest level since the 1970s

The unemployment rate fell to its lowest point in nearly two decades, the government reported Friday, delivering good news to President Donald Trump and Republicans as they head into the summer campaign blitz.

But labor force participation remained low, and the wage bump that Trump predicted last year remained elusive in April, four months after Congress passed a massive tax cut.

Unemployment fell to 3.9 percent, the lowest since December 2000, and labor force participation was 63 percent, virtually unchanged since the start of 2018 and close to its lowest level since the 1970s. During the 2016 campaign, candidate Trump repeatedly questioned the validity of the official unemployment rate because it didn't take into account those who'd dropped out of the workforce.

Average hourly private-sector wages were up 2.6 percent in April over the previous year, the same as in March. Those percentages don't take into account the annual inflation rate, which is a bit over 2 percent. Job growth for April was 164,000, the Labor Department reported, after March's weak showing of 135,000.

Labor Secretary Alexander Acosta sought to paint a rosier picture on wages, noting that average weekly earnings in April were up $1,300.

“These increases do not include the millions of bonuses received by American workers since the President’s tax cuts,” Acosta said in a written statement. “Although there was an increase in wages, we would like to see more wage growth.“

The White House Council of Economic Advisers predicted in October that the tax bill, would boost average household income by at least $4,000. But even some Republicans are starting to question that premise.

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“There is still a lot of thinking on the right that if big corporations are happy, they’re going to take the money they’re saving and reinvest it in American workers,” Sen. Marco Rubio (R.-Fla.) said in a much-quoted interview this week with The Economist. "In fact they bought back shares, a few gave out bonuses; there’s no evidence whatsoever that the money’s been massively poured back into the American worker."

Rubio later clarified that his comments referred only to the tax bill's corporate rate cuts, not its cuts to personal rates.

The more widely held expectation that the tax cuts would boost economic growth has yet to bear fruit. The Commerce Department reported last week that GDP grew a disappointing 2.3 percent in the first quarter of 2018, compared to 2.9 percent in the last quarter of 2017.

“Continued slow growth tells us that employers still hold most of the cards and don’t have to offer higher wages to attract workers,” tweeted Elise Gould of the left-leaning Economic Policy Institute. “In other words, workers have very little leverage to bid up their wages.“

Despite April's weak wage growth, economists continue to forecast stronger growth later this year as the labor market tightens. "We do expect wages to accelerate throughout the year, gradually," said Jeremy Schwartz, vice president of economics at Credit Suisse. "There's just more money to go around."

But faster wage growth would likely encourage the new Federal Reserve chairman, Jerome Powell, to move faster to raise interest rates. The Fed will next weigh that question when the Federal Open Market Committee meets June 12-13.